Taking the measure of the stock market bounce

One of two things is going to happen. We can set a low in March and have an inversion, which sparks the next major rally leg, or we can have a top. The way things look right now, it’s more likely we are going to get a high as opposed to a low. For us to have an inversion low, something is going to have to start happening soon to reverse this complacent action. With three weeks to go, the dollar is again threatening to break down while the EUR-USD has a very nice looking power bar and doesn’t look like it wants to retrace much of it.

Here’s the action on the EUR-USD. That major green wide range bar is likely short covering, which means we’ve reached an area where bears are not interested. If you think about these patterns as you would field position in a football game, it shouldn’t take a rocket scientist to realize the bulls own that territory. Not only do they own the territory, but the retest wasn’t even very serious. While you are looking at this, the Greenback violated a very good near-term Gann square of 9 reading, and when those kinds of readings are violated the action usually travels a good distance beyond that level. Simply put, the dollar is threatening to break down, and for the most part we’ve seen the inverse relationship with the equity market. I know there was a sequence last month where the dollar dropped with the stock market. But that is the exception as opposed to the rule. Until proven otherwise, I have to go with the probabilities.

What is the takeaway from all this? Yeah the equity market is going. But something is not quite right here because the smart money isn’t buying into the complacency of a lousy jobs number. That’s why they are the smart money. The history of the stock market suggests it’s the not-quite-that-smart money who buys this late in the bull. Since they have no staying power, they run to the door first when the day of reckoning comes.

Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.